What is an Economy and it variables

1. WHAT IS AN ECONOMY?

2. Economy or Economic System
The way a nation
makes choices.
These choices
involve how the
nation will use its
resources to produce
and distribute goods
and services.

3. Resources
All things used in producing goods
and services
Factors of Production – the technical
term economists use for resources

4. Resource 1 – Land
 Everything on the earth in its natural
state / the earth’s natural resources
 Resources Include:
– Everything contained in the earth or found
in the sea
– Coal and crude oil are examples
– A lake and all the living
things in the lake are
also examples

5. Resource 2 – Labor
 All the people who
work in the
economy
 Labor includes:
– Full and Part-time
Workers
– Both the Public
and the Private
sector

6. Resource 3 - Capital
 The money needed to start and operate
a business
 The goods used in the production
process
 Examples are:
– Factories
– Office Buildings
– Computers
– Raw materials that are processed
into a more useful form (lumber, steel)

7. Resource 4 - Entrepreneurship
 The skills of the people
willing to risk their time
and money to run a
business
 Entrepreneurs organize
the other factors of
production to create the
goods and services
desired in an economy

8. Infrastructure
 The physical development of a
country
 Things necessary for
production and distribution of
goods and services
 Parts of the infrastructure
include
– Roads
– Ports
– Sanitation Facilities
– Utilities

9. Scarcity
The difference between wants and
needs and the resources available to
meet these needs is called Scarcity.
Nations have unlimited wants and
needs but limited resources –
Scarcity forces the nations to make
economic choices.

10. The Basic Economic Questions
 Nations must answer 3 basic economic
questions when deciding to use their
limited resources
 The way nations answer these questions
define their economic system
– What goods and services should be produced?
– How should the goods and services be
produced?
– For whom should the goods and services be
produced?

11. What Should Be
Produced?
 Consumers decide what is to
be produced through
purchases made in the market
place.
 Items that satisfy the
customer’s needs and wants
are purchased making the
products successful
 Items that do not satisfy the
needs and wants of the
consumer are not purchased
and are not successful

12. How Should Goods and
Services Be Produced?
 How products will be produced is left up to the
business
 Businesses must be competitive
 Businesses must produce quality products at lower
prices than their competitors
 Businesses must find the best way to produce goods
and services
 Businesses must also find the best way to encourage
customers to purchase their products

13. For Whom Should Goods and
Services Be Produced?
 Those individuals with
the most money are able
to purchase more goods
and services
 To obtain money
individuals work and
invest